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IMF outlook for the global economy in 2023 is dim


WASHINGTON –

The International Monetary Fund is downgrading the world economy’s outlook for 2023, citing a long list of threats including Russia’s war against Ukraine, chronic inflationary pressures, punitive interest rates penalties and lasting consequences of the global pandemic.

The 190-nation lender forecast Tuesday that the global economy will grow just 2.7% next year, down from the 2.9% it estimated in July. The IMF left its international growth forecast unchanged for this year – a modest 3.2%, a sharp drop from last year’s 6% gain.

The bleak forecast is no surprise. IMF Managing Director Kristalina Georgieva, noting the dire backdrop for this week’s IMF and World Bank autumn meetings in Washington, warned that the “risk of a recession is growing” around the world and the economy The global economy is facing a “fragile historic period.”

In its latest estimate, the IMF cut its growth outlook in the United States to 1.6% this year, down from a July forecast of 2.3%. It projects meager 1% U.S. growth next year.

The Fund forecasts that China’s economy will grow only 3.2% this year, down sharply from 8.1% last year. Beijing has instituted a draconian zero COVID policy and has cracked down on excessive real estate lending, disrupting business operations. China’s growth is forecast to accelerate to 4.4% next year, still subdued by Chinese standards.

In the IMF’s view, the collective economies of the 19 European countries that share the euro, are reeling from soaring energy prices due to Russia’s attack on Ukraine and Western sanctions. West to Moscow, will increase by only 0.5% in 2023.

The world economy has gone through a wild ride since COVID-19 hit in early 2020. First, the pandemic and the shutdowns it created brought the world economy to a standstill. After that, massive government spending and low interest rate borrowing designed by the Federal Reserve and other central banks spurred a rapid and strong recovery. unexpectedly strong from the pandemic recession.

But the stimulus has come at a heavy price. Factories, ports and freight yards have been overwhelmed by strong consumer demand for manufactured goods, especially in the United States, leading to delays, shortages and higher prices. (The IMF expects worldwide consumer prices to rise 8.8% this year, up from 4.7% in 2021.)

In response, the Fed and other central banks reversed course and started raising interest rates significantly, risking a sharp deceleration and possible recession. The Fed has raised its benchmark short-term rate five times this year. A higher exchange rate in the United States attracted investment away from other countries and strengthened the value of the dollar relative to other currencies.

Outside the US, a higher dollar makes imports sold in US currencies, including oil, more expensive and thus increases global inflationary pressures. It also forces foreign countries to raise their own rates – and burden their economies with higher borrowing costs – to protect their currencies.

Maurice obsfeld, a former IMF chief economist who now teaches at the University of California, Berkeley, warned that an overly aggressive Fed could “push the world economy into an unnecessarily harsh contraction.”

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